From Boom to Bust: AFFY's Post-Recall Slide Continues

By Jennifer BoggsManaging Editor

Practically overnight, Affymax Inc. went from being lauded as a biotech success story and Wall Street darling to become one of the sector's biggest disappointments, and now, according to the latest 10-Q filing, the Palo Alto, Calif.-based firm might be nearing its end.

Despite drastic cuts to its staff  75 percent of employees were let go in March, and dates of separation are in the works for the remaining 25 percent, including the CEO and chief financial officer by June 15  and restructuring efforts that put the costs for pursuing potential pathways for recalled anemia drug Omontys (peginesatide) fully in the hands of partner Takeda Pharmaceutical Co. Ltd., Affymax said it still faces an uncertain future. (See BioWorld Today, March 20, 2013.)

"The recall of Omontys has severely harmed our business, financial condition and prospects as a going concern," the firm disclosed in its filing, which listed $56.2 million in cash, equivalents, restricted cash and marketable securities. "Our liabilities exceed our assets. While we continue to reduce cash outflows, there is no assurance that we will be able to reduce our operating expenses enough to meet our existing obligations in a timely manner."

Shares of Affymax (NASDAQ:AFFY) fell 45 cents, or 25 percent, to close Friday at $1.36, marking a 93 percent decline on the year and eliminating most of the slight gains seen late last week following a somewhat bullish analyst report on the hope for Omontys' possible return to market.

The 10-Q filing, however, left little room for such hope. The firm, which has an accumulated deficit of $570.4 million, said it will look at alternatives such as selling the firm or its assets, as well as considering further restructuring activities, a wind-down of operations or bankruptcy proceedings.

What Happened

For Affymax, the change in fortune was abrupt.

The company entered 2013 with its share price topping $20, buoyed by steady sales growth of Omontys, an erythropoiesis stimulating agent (ESA) that gained approval in March 2012 for use in adult dialysis patients with chronic kidney disease. The product, hailed as the first new ESA to hit the market since 2001, pulled in total sales of $34.6 million from launch to the end of 2012 and had started to pick up steam after receiving its official J-code from the Centers for Medicare & Medicaid Services.

Then, in February, reports of mild allergic reactions from a pilot study of Omontys began to surface, and less than two weeks later, Affymax and Takeda announced they were voluntarily withdrawing all lots of the drug due to postmarketing reports of serious hypersensitivity reactions, including anaphylaxis, which resulted in the deaths of three patients. (See BioWorld Today, Feb. 15, 2013, and Feb. 26, 2013.)

A month later, Affymax let go of 230 employees and, in April, revamped its collaboration with Takeda, transferring all product and regulatory responsibilities, including Omontys' new drug application, to the Osaka, Japan-based big pharma. That means Takeda now is charged with completing an investigation into the cause of the hypersensitivity reactions  in part, figuring out why the severity of the reactions was so much more extreme in postmarketing settings vs. clinical testing  and deciding whether to try to reintroduce Omontys to the market. (See BioWorld Today, March 20, 2013.)

If Takeda ends up bringing Omontys back, Affymax would be eligible for royalties and potential commercial milestones. But that's a big if.

As Piper Jaffray analyst Ian Somaiya noted in a research report last month, there is "still no visibility into what went wrong," and neither Affymax nor Takeda has offered a timeline for concluding the investigation. "We continue to believe the road to potential recovery is long," Somaiya said, adding that, even should Omontys return to the market, the setback could mean its commercial prospects suffer "permanent damage in the eyes of physicians."

Outlook Grim

It's rare for a product recalled for safety concerns to make it back onto shelves, but it does happen. Probably the most high-profile example is multiple sclerosis (MS) drug Tysabri (natalizumab), which was voluntarily yanked by developers Biogen Idec Inc. and partner Elan Corp. plc only months after it was introduced due to a link to progressive multifocal leukoencephalopathy, a potentially fatal viral infection. (See BioWorld Today, March 1, 2005.)

In 2006, Tysabri was allowed a second change, thanks to the development of a risk management plan, as well as an aggressive patient advocacy campaign citing the drug's overwhelming benefits for MS patients. (See BioWorld Today, June 6, 2006.)

A similar patient advocacy outcry is unlikely for Omontys, mostly because there already are other ESAs on the market, such as Amgen Inc.'s Epogen (epoetin alfa).

And, unlike Biogen, which had other streams of revenue and was large enough to absorb losses associated with Tysabri's temporary withdrawal, Affymax had been banking on Omontys as its primary growth driver and has little else in its pipeline. The small biotech, too, faces class action lawsuits filed after the Omontys withdrawal. While Affymax said it believes it has "meritorious defenses," the costs of defending those could be significant.

Founded in 2001, Affymax has developed a platform that incorporates advanced recombinant peptide and peptide chemistry techniques and has peptide libraries it has offered for licensing. The firm has traded on Nasdaq since pricing an initial public offering in 2006. (See BioWorld Today, Dec. 18, 2006.)